Social Venturing Economics in Europe

Definitions, dimensions and main Characteristics of Social Venturing Economics

2011

Prof. dr. ir Gert van Dijk

*Nyenrode

Business Universiteit

*The Netherlands

Institute for Social Venturing Economics & Cooperative Entrepreneurship

Economics of freedom?

COOPERATIVE BANKS IN EUROPE SURVIVED BEST

Relationship between market share cooperative banks and Z-score in 7 countries

(Z score = (roa +e/a)/ɕ roa)

stab

ilit

y

Market share cooperative banks

Key figures of some cooperative banks

Tier-1 ratio’s en return on equity

Losses caused by the crisis

Ratings (after losses caused by the credit crisis)

COOPERATIVE (MUTUAL) INSURANCE

Trends in legal entities of Mutual Insurance

0

20

40

60

80

100

120

1999 2004 2009

Governmental

Limited

Foundation

Cooperative/OWM

Some observations in loyalty between insurers

Difference in service perception

Social Venturing Economics

new forms of entrepreneurship

Social Venturing

To contribute to ‘societal problems’ in a business-like manner

‘Societal problems’ are problems which are not (yet) part of the market system and which cannot be solved by government

Societal venture capitalSocial venturers are experienced, most of

them have ‘harvested’ at least once in their life and are committed

Social Venturing (formal definition)

Social venturing entrepreneurshipSocial venturing entrepreneurship (SVE) is the application of (SVE) is the application of entrepreneurship with the aim to entrepreneurship with the aim to contribute to solving societal goals; in contribute to solving societal goals; in situations where markets do not (yet) situations where markets do not (yet) operate; without seeking profit on the operate; without seeking profit on the basis of shareholder value or basis of shareholder value or entrepreneurial rent.entrepreneurial rent.

social venturing innovation for direct benefits of society

‘wicked’ problems that can be solved by technological and social/institutional innovation - if civic driven

Sustainability

Ecological sustainability is long term

economic sustainability (Planet)

(Social) Sustainability

Social institution development

Entrepreneurship

Long term commitment; however, exit opportunities

are signs of success

Cost of dispute, micro justice

In sum: Social venturing

= Mobilizing the power of enterpreneurship for someone or something else than anonymous

‘shareholders’

Special questions:

1. Measurement of ‘social dividends’

2. Status in public (government-)domain

3. Relationship with corporate investments

4. Methods of finance

5. Governance

Turning a recipient structure for philantropy into SVE recipient structure

Entrepreneurial behaviour

Self-disciplined and autonomy‘we’(new) respect voor institutions:

constitution, clubs and societies, church

nobody is too poor to help

public

private

StateCoercion /

Voice

MarketExchange/Exit/Choice

Community‘For Free’/Love

personal

prof

it

Non

-pro

fitformal

informal

Maa

tsch

appel

ijk

e onder

nemin

g

SVE initiators are entrepreneurs who are able to involve politicians, army leaders, diplomats, governments, NGO's and corporates-the effect should be enhanced entrepreneurship by the recipients-particular attention to be given to the 'recipient structure‘-no gifts, all has to be repaid in due course-no shareholder gains; profits will be allocated to the participating communities-introduction of an independent judge, preferably the final market attached to the supply chain

- countervailing power and cooperative governance throughout the value chain (participation of all participants)

- concomitant policies: education, training, philanthropy by the recipients themselves

- two strategies: cooperation or defection. 1) Always start cooperatively; 2) if the other defects, also defect; 3) be forgiving, if the other is willing to cooperate again, then do so also

- not all parties need to profit to the same extent; no one should be worse off

- most favoured participant clause: if special offers are made to one party in the group, offer these to comparables as well.

Measurement

Financial value (profit is an opinion, cash is a fact)

Economic value (measurable via instrumental nomological methods (Social evaluator)

Social value (micro insurance, micro justice)

Examples

Stewardship wild life landsGaza flower production and

marketing chainUruzgan orchardTendris lightVita valley health

Farmers Coops Agrexco

Suppliers

Auction

CROSSING

AIRPORT

$$$

10 commandments

1. Initiators are entrepreneurs who are able to involve politicians, army leaders, diplomats, governments, NGO’s an corporates.

2. The effect should enhance entrepreneurship by the recipients.

3. Particular attention to be given to the “recipient structure”

Cont’d, 1

4. No gifts, all has to be repaid in due course

5. No shareholder gains; profits will be allocated to the participating communities

6. Introduction of an independent judge, preferably the final market attached to the supply chain

Cont’d, 2

7. Countervailing power and cooperative governance throughout the value chain (participation of all participants)

8. Concomitant policies: education, training, philanthropy by the recipients themselves

9. Not all parties need to profit to the same extent; no one should be worse off

Cont’d 3

10. Most favoured participant clause: if special offers are made to one party in the group, offer these to comparables as well.

COOPERATIVES AND AGRIBUSINESS – THE CASE OF MARKET FAILURE

business operationsof the limited company

(subsidiaries)

members/ownersmember community

member administration

business operationsof the cooperative

owner administration

A typical model of a modern large marketing cooperative

member financing

businessconnection

equity financing

customers

purchase

Externalfinancing,

(occasionally)

Two tier entrepreneurship:

Entrepreneurial strategies: both at farm and cooperative business level

Entrepreneurial-goals

cooperativefirms

Entrepreneurial goalsMember firms

starch

brand-strategy

Marketing,complementaryservices, trade

Product developmentRaw material

meat

dairy

Fruit & vegetables

Flower/auction

trading

Seed potatoes

Animal genetics

Finance, international dairy cooperatives

Problem definition

Farmers have to yield both market and public services as

autonomous firms;

Farmers cooperate in hybrid structures;

Many different interests, stakeholders and specialists;

Various sources of income, incentive mechanisms and organisation cultures.

Developments

Three main strategies can be observed:I. Coops targeting local and niche markets

while serving both on output ànd on input of members (mainly in Mediterranean countries)

II.Strategic mergers and acquisitions; international brands. Financed by reservation strategy.

III.Institutional contracting support of members